Jerome Powell has been sucked into a one-sided communication fight with Donald Trump, who blames Federal Reserve chairman for losses in stock market.Powell cant match presidents megaphone on social media.
But he can try to prevent equity prices becoming barometer of Fed success by reminding public that Congress gave it a different mandate: stable prices, and jobs for as many Americans as possible.Trumps Twitter feed is drowning out message that economy is doing well with low inflation and record low unemployment, said Sarah Binder, a senior fellow at Brookings Institution in Washington.Since October 3, US equity prices have plunged almost 15 per cent, and Trump has put blame squarely on Fed.
He tweeted on December 18 that central bankers needed to feel market and hold off from hiking one day before they raised rates.
Bloomberg News reported Dec.
21 that president had discussed firing Powell.The Fed chief has a chance to snatch initiative back with public appearances on Friday in Atlanta and January 10 in Washington.The burden is on him to come back and say, we are taking everything into account and we are also doing it independently, Diane Swonk, chief economist at Grant Thornton LLP in Chicago.
There is no easy answer here, she said, because Fed cant be entirely separated from causes of stock market volatility.While investors had expected last months rate increase, which showed Powell was willing to defy president, they were alarmed by projections for two more hikes in 2019.
The SP 500 index fell more than 5 per cent from December 19-21.NOT JUST FEDThe slide in share prices has many causes, analysts say.Stocks may have been over-valued relative to a forecast for moderating US and global growth in 2019.
Domestic stimulus engineered by Trump in early 2018 will fade in coming quarters.
China and eurozone both show signs of slowing.
The economic outlook could deteriorate further amid Trumps trade dispute with China and threat of a disorderly UK exit from European Union.The Fed did acknowledge those growing risks in its December 19 policy statement, pledging to monitor global economic and financial developments.
That left investors puzzled over what it would take for central bank to shift into a holding pattern especially when there are few signs of rising inflation.For all that, data show Fed is doing what Congress asked it to.
The jobless rate is below Feds estimates of what constitutes full employment, and inflation is running close to its 2 per cent target.LOUDER VOICEMoreover, Powell and his colleagues have said theyll pull back if new data confirm markets more pessimistic outlook.
The two projected rate hikes could disappear, just as four increases foreseen at end of 2015 turned into just one during 2016.
Investors, however, arent getting that message.
Two possible reasons stand out: The critics have a louder voice, and Fed communication hasnt been clear.Trump has 57 million followers on Twitter and each of his tweets on Fed is amplified by blaring media headlines.
The Fed Board has 500,000 followers, and generally limits its tweets to dry topics like speeches or economic research.
And, while worlds most powerful central bank does get plenty of media coverage, its own communication can be hard to decode even for market professionals.COULD DO BETTERIt could do better, according to Richard Torrenzano, chief executive of The Torrenzano Group, which counsels corporations and executives on reputational strategy.The Federal Reserve does have a large megaphone and bully-pulpit platforms they have chosen not to use, Torrenzano said.
They need to explain why and what they are doing in an active and thoughtful way, including on social media, he said.
Until they do, they will continually get beat up.
One example is current Fed dependence on incoming data, which officials could do a better job of explaining.
Its not first time theyve had this problem.
In 2006, Feds then-Vice Chairman Donald Kohn urged his colleagues to spell out what that meant.
We have all said in our speeches, we are becoming more data-dependent, he said.
It behooves us to explain to public what data were looking at.Another difficulty for Powell is that investors have an exaggerated sense of what problems Fed can or should solve, according to Mickey Levy, chief US and Asia economist at Berenberg Capital Markets.
He thinks Powell should stick to emphasizing his progress toward meeting central banks statutory goals.Markets expect Fed not just to manage real economy, but to prop up stock market, Levy said.